The Federal Reserve is expected to trim a key interest rate again today by as much as a half-point, dropping the rate to one-percent even. Iowa Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee, says it should make it easier and cheaper to borrow money, but lowering interest rates likely won’t do a lot toward helping to strengthen the struggling economy.
Grassley says, "I think it will have a beneficial impact considering the credit crisis we’re in, but not as much of an impact as it would normally have because everything seems to be frozen." He says uncertainty about the rollercoaster marketplace has consumers and business owners frightened about their finances and investments.
"People’s confidence is frozen," Grassley says. "Banks are freezing credit. Credit-worthy people don’t want credit. People that are less credit-worthy aren’t able to get credit. Everything’s kinda’ frozen in place, not only in this country but in other countries as well."
There’s talk that another economic stimulus package will be considered when Congress reconvenes in mid-November. Grassley says he’s not convinced that’s a good idea, as many people didn’t spend the -last- checks.
Grassley says: "It’s quite obvious that if you give out rebate checks, you’re hoping to stimulate the 70% of the economy that’s based upon consumer spending. I don’t have the final figures in but there’s some indication that maybe the checks we put out last time did not have the same impact as similar checks that went out during the 2001 recession."
As Americans see their 401K plans dwindling and their stock investments crumbling, he says people are holding onto their money and reigning in spending in all sectors. If more government checks are sent out, Grassley says they may not have the desired effect as many people won’t spend that money, but they’ll squirrel it away instead.